Rich corporations, poor societies:
The financialisation
of Apple
By Rodrigo Fernandez (SOMO) and Reijer Hendrikse
October 2015
Contents
1Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 Corporate financialisation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 The financialisation of Apple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1
A short overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2
Offshoring/outsourcing production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3
Offshoring paper trails. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4
Apple’s cash pile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5
A corporate cash machine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Colophon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1Introduction
At the dawn of the new millennium, Apple Inc. stands as the epitome of a digitalised and globalised
economy shaped by information and communication technologies. A world where capital instantly
flows from New York to Singapore; a world in which economic and social exchange are no longer
bound by physical barriers – that world is very much the product of Silicon Valley, the world’s tech
capital, where Apple stands as a class of its own. At the same time, Apple also embodies the
global rise of the multinational corporation, capitalising on low-wage jurisdictions and tax havens,
accumulating record profits and cash reserves. As elsewhere, the beneficiaries of the status quo
are Apple management and shareholders, while other stakeholders – workers, citizens and
governments worldwide – hardly benefit from this mounting corporate affluence. In fact, structurally
exploiting workers and dodging taxes comprise some of the key strategies through which Apple
maximises its financial returns.
Founded in 1976, Apple’s ascent of coincided with a broader set of political, economic and
cultural developments, which over the course of a few decades have come to transform the
capacities of states and corporations alike. Tied up with processes of globalisation and neoliberalisation, this paper zooms in on one of the main consequences of these changes: the increasing
dominance of financial markets, investors, products and logics in shaping economic dynamics
and outcomes, cumulatively known as financialisation. Through a case study of Apple, the present
paper explores the ascent, characteristics and limitations of this evolving corporate ecosystem,
in which multinational corporations have increasingly been able to accumulate record tax-free profits,
hoard phenomenal savings and deliver large returns for their shareholders.
In this paper, Apple features as a illustration of how multinational corporations have progressively
been able to realise profits far beyond their capacity to reinvest in the real economy, seeing these
cash pools feed into financial markets. These unprecedented profits are primarily based on
depressed wages. The shift from investing in real assets (e.g. equipment, research & development)
towards financial assets (e.g. stocks, bonds) is exemplified in the declining rate of corporate
investments, which translates into mounting corporate savings (gross profits minus investments
and taxation). Corporate savings are typically parked in tax havens,or offshore financial centres,
enabling corporations to minimize their tax bills. The overall outcome is paradoxical: never before
were corporations more awash with cash, yet besides corporate management and shareholders
hardly anyone is benefiting from corporate investments and tax returns, reinforcing troubling
trends such as high unemployment, rising inequality and fiscal austerity. While governments
around the globe are confronted with with lower corporate income taxes, leading to tax hikes
elsewhere and/or reductions in public investments and services, workers are struggling with
reduced purchasing power. This, in turn, leads to ballooning public and private debts. Added up,
in the long run this corporate business model is unsustainable, as it lowers effective demand and
is contingent on a swelling stock of financial assets, ultimately household and government debt.
This paper is based on a reading of the relevant academic literature on financialisation, literature
on Apple’s business model, media coverage and public investigations of Apple’s offshore strategy,
as well as an analysis of Apple’s financial performance. The argument is structured accordingly:
the next section contextualises the case study of Apple by discussing the broader interconnected
trends that have shaped the developed economies over the latter decades: (i) declining wages; (ii)
lower nominal taxes on capital; (iii) lower effective corporate taxes, resulting in (iv) ballooning
corporate profits. The third section features the case study of Apple to concretize the preceding
Rich corporations, poor societies: The financialisation of Apple
3
narrative. This is done by an evaluation of Apple’s (i) evolving business model, focusing on
the corporation’s offshoring strategy as it applies to (ii) its material production processes, and
(iii) the immaterial ‘paper trails’ that account for Apple’s expenses and revenues. The overall
strategy minimises costs and taxes, and hence (iv) maximises the company’s profitability
and shareholder value.
In order to contribute to a more balanced and sustainable economy, multinational corporations
including Apple should radically evaluate the long-term impact of their business models. Above
all, this requires corporations to do more than focusing on the short-term generation of shareholder
value. To this end, this paper calls upon governments to make corporations (i) pay their fair share
in taxes, (ii) pay decent wages and (iii) invest cash reserves in productive rather than financial
assets. Ultimately, from a long-term perspective these changes will also benefit corporations
including Apple and their shareholders, as the status quo is simply untenable.
Rich corporations, poor societies: The financialisation of Apple
4
2 Corporate financialisation
The financialisation of the corporate universe did not emerge out of nowhere. Since the Second
World War, developed economies have been subject to two successive policy regimes. Stretching
from the immediate post-war years until the early 70s, the first was the age of Keynesianism –
a period characterized by strong growth, an interventionist state and a focus on full employment.
Large corporations were predominantly confined within the national state, and the international
financial system was based on a fixed exchange-rate regime, resulting in financial stability and
operational autonomy for states. The turbulent 70s, however, saw the end of the ‘golden age’ of
post-war capitalism: growth and corporate profitability, particularly in the United States, stagnated
or declined, whilst inflation was on the rise. As a result, the post-war era of ‘embedded liberalism’
made way for a new policy regime, which eventually became known as ‘neoliberalism’, seeing the
power of organized labour dismantled on the back of an international financial system that was
progressively unshackled from its post-war chains. Three interlinked developments characterize
this period – globalisation, neoliberalisation and financialisation –all three of which have accelerated
the spectacular ascendance of the multinational corporation, and the largest of these developments
have come to assume a global reach.
Among other indicators, the increase in global capital mobility and corporate power is exemplified
in the rise of cross-border foreign direct investment (FDI). In part, mounting FDI flows speak to
the cross-border merger and acquisition mania of corporations – typically instigated by investment
bankers – signalling the concentration of production into a shrinking group of ever-larger firms.
Figures from the United Nations Conference on Trade and Development (UNCTAD) show that the
assets held by foreign affiliates of multinationals rose from $3.9 trillion in 1990 to $102 trillion in
2014. Corporate concentration is also reflected in the growing global sales by foreign affiliates of
multinationals, rising from $4.7 trillion in 1990 to $36.4 trillion in 2014.1 Furthermore, in 2013 UNCTAD
estimated that 80% of global trade took place between and within multinational corporations
i.e. affiliate companies conducting business with one another within a corporate conglomerate.2
If anything, these figures demonstrate a radical reconfiguration of corporate activities – from
operating mostly within national states during the Keynesian age, toward globally integrated value
chains during the neoliberal era.
Budding corporate integration has also resulted in a new international division of labour, seeing
corporations relocate productive capacities from high- to low-wage jurisdictions in order to lower
production costs. These developments have accelerated on incessant waves of neoliberalisation,
with states around the globe enacting policies of deregulation, liberalization and privatization.
Besides lowering production costs, increasingly mobile corporations have adjusted their organizational setup to minimize their tax bills, incorporating a range of ‘activities’ in offshore tax havens.
As a result, particularly in developed economies, declining wage shares and corporate tax incomes
have been offset by spectacular rises in both public (government) and private (household) debt,
signalling the advent of financialisation: the increasing dominance of financial markets, investors,
products and logics in shaping economic dynamics and outcomes.
1
UNCTAD (2015) World Investment Report 2015: Reforming International Investment Governance. United Nations
Conference on Trade and Development, available online: http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf.
2
UNCTAD (2013b) GVCs and Development: Investment and Value Added Trade in the Global Economy. United Nations
Conference on Trade and Development, available online: http://unctad.org/en/PublicationsLibrary/diae2013d1_en.pdf.
Rich corporations, poor societies: The financialisation of Apple
5
The rise in corporate power against governments and workers is exemplified by a range of
outcomes: first, we can observe a decline in the wage share (wages as a percentage of GDP,
indicating the distribution of income between capital and labour) throughout developed and emerging
economies. Figure one shows what this decline looks like in a number of developed economies.
The drop in the wage share was particularly large in Japan, but the trend is similar across different
economies. The worldwide picture shows a 10% decline in the wage share from 64% in 1980 to
54% in 2008, signifying a huge transfer of money from workers, communities, and societies at
large, to capital owners amounting to $7 trillion in 2013.3 Although China experienced a doubledigit wage growth from the 1990s until 2008, the wage share declined from 52% in the mid 1990s
to 47% in 2011.4 Second, increased capital mobility and corporate power saw many states enact
a range of policies to attract FDI, resulting in the gradual lowering of corporate income tax rates.
Figure two shows the decrease in nominal rates throughout developed economies. The overall
metamorphosis in capital-labour relations is an essential building block to understand the causes
and consequences of financialisation, as declining wage shares and corporate income taxes
were typically offset by rising household and government debts (see Köhler et al 2015).5
As indicated, amidst the neoliberal makeover of the global political economy, large corporations
have increasingly financialised. The concept of financialisation is studied on a range of different
levels, or scales, and its definition and metrics are constantly subject to debate. This paper does
not intend to settle these quarrels. Instead, we foreground those processes and outcomes linked
to financialisation which are relevant to the financialisation of corporations in general and, in
particular, to the case of Apple. Three (interconnected) developments stand out: first,since the
neoliberal turn virtually all publicly-quoted corporations around the globe have increasingly adopted
corporate governance models geared toward the generation of shareholder value to improve
corporate profitability, seeing executive management increasingly if not exclusively occupied with
pumping up the share price of their firms. An exclusive shareholder value-orientation typically
comes at the expense of other stakeholders in the corporation and wider society e.g. workers,
governments, citizens, the environment, and so forth. Furthermore, besides this general development
indicative of corporate financialisation, depending on one’s particular business model and relative
success, the financialisation of corporations can be subdivided along two axes.
Partly as a result of stagnating wages and reduced public spending, many corporations have
themselves increasingly delved into financial services, thereby contributing to the neoliberal trend
of rising private debts. A classic example is General Electric, which set up GE Capital, but one
could also think of virtually all German automotive firms that set up their own financing companies
or banks. These developments resonate with Krippner’s6 definition of financialisation, where
corporate profit-making increasingly occurs via financial channels, rather than through productive
capacities. Having said this, although many corporations have set up their own finance arms, not all
corporations have witnessed increasing returns from financial channels. For example, Apple is very
much capable of generating high margins combined with stellar revenue growth, seeingprofits
3
UNCTAD (2013a) Trade and Development report 2013. United Nations Conference on Trade and Development, available
online: http://unctad.org/en/publicationslibrary/tdr2013_en.pdf.
4
ILO (2014) Global Wage Report 2014/15: Asia and the Pacific Supplement. International Labour Organization, available
online: http://www.ilo.org/wcmsp5/groups/public/---asia/---ro- bangkok/---sro-bangkok/documents/publication/
wcms_325219.pdf.
5
Köhler K, Guschanski A, Stockhammer E (2015) How Does Financialisation Affect Functional Income Distribution?
A Theoretical Clarification and Empirical Assessment. Kingston University London, Economics Discussion Paper 2015-5.
6
Krippner G (2005) The Financialization of the American Economy. Socio-Economic Review 3(2) 173-208.
Rich corporations, poor societies: The financialisation of Apple
6
Figure 1 – Declining wage shares in selected economies 1980- 2015
70
France
65
Italy
United States
60
Japan
55
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
UK
1980
Wage share as % of GDP
75
Source: AMECO annual macro economic database July 2015
Figure 2 – Declining nominal corporate income tax, OECD average 1981-2013
50%
45%
40%
35%
30%
25%
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
20%
Source: OECD tax database
stemming from productive capacities structurally dwarf Apple’s financial returns. Crucially, however,
as Apple is able to amass record profits and reserves far beyond its capacity to reinvest them into
productive capacities, i.e. the ‘real’ economy, Apple increasingly invests its reserves in financial assets.
In so doing, Apple has increasingly come to resemble a large financial investor, acting like a hedge
fund or bank. This development can also be classified as a process and outcome of financialisation.
During the neoliberal age, a growing number of corporations have come to adopt a financialised
or investor outlook, typically seeing short-term financial considerations trump long-term strategic
visions. Pumping up the share price of a corporation can be achieved in multiple ways. A popular
method is buying back shares, whereby the corporation inflates the price of the outstanding shares.
But there are other ways to increase the market capitalisation (that is, the share price, times the
number of outstanding shares) of a corporation, and hence increase the shareholder value of the
firm. Unsurprisingly, these include developments outlined previously i.e. the offshoring and
Rich corporations, poor societies: The financialisation of Apple
7
outsourcing of ‘real’ productive activities to low-wage jurisdictions, and the offshoring of ‘paper
trail’ activities to low-tax jurisdictions. In following such strategies, the risk and return dynamics
of the corporation are adjusted to the benefit of corporate bonuses and dividends, i.e. of
corporate management and their shareholders, and at the expense of broader society.
It should be noted that the world’s largest corporations typically benefit disproportionately from
public investments – in (rail) roads, education, military spending, and so forth. Paradoxically,
however, whilst enjoying the investments made by governments and taxpayers, they are also best
equipped to reduce their corporate income tax bills by establishing or incorporating themselves
in a range of low-tax jurisdictions, seeing effective (actually paid) corporate income tax rates far
lower than the aforesaid nominal rates. Since the 1920s, international taxation has been governed
by thousands of bilateral double-tax treaties under the auspices of the League of Nations, the
predecessor of the United Nations (UN). These arrangements functioned relatively well for most
part of the 20th century, as - globalisation actually retreated until the 70s. It was with the neoliberal
turn and the accompanying rise of global corporations that international taxation progressively
became an issue.7 A growing number of states actively sought to attract their desired share of
FDI, which created more opportunities for corporations to minimize their tax bills (and pump up
the share price). Given these developments, it is hardly surprising that corporate profits have
ballooned in recent times. Figure three shows the rise in corporate profitability for US firms:
Figure 3 – Rising US corporate profits as percentage of GDP 1981-2013
10%
8%
6%
4%
2%
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
0%
Source: FRED
The 1970s restoration of corporate profitability, fuelled by and combined with lower corporate
investments and tax payments, has brought about some noteworthy changes. For example, as
noted by the International Monetary Fund8: “since the 1980s, the corporate sector of the G-7
economies [the world’s leading industrialised economies, note added] has swung from being
7
Zucman G (2014) Taxing across Borders: Tracking Personal Wealth and Corporate Profits. Journal of Economic
­Perspectives 28(4) 121-148.
8
IMF (2006) Awash With Cash: Why are Corporate Savings so High? International Monetary Fund, available online:
http://www.imf.org/external/pubs/ft/weo/2006/01/pdf/c4.pdf.
Rich corporations, poor societies: The financialisation of Apple
8
a large net borrower of funds from other sectors of the economy to a net lender of funds”.9
Put differently, by amassing record profits and cash reserves on the back of declining wage shares,
tax dodging and financial engineering global corporations have increasingly come to resemble
the workings of banks or investment funds – all signifying the advent of corporate financialisation.
To concretize the broader developments detailed above, the next section focuses on the evolution
of what recently has become the world’s most valuable corporation: Apple Inc. headquartered
in Cupertino (CA), in the United States.
9
IMF (2006) Awash With Cash: Why are Corporate Savings so High? International Monetary Fund, p. 140, available online:
http://www.imf.org/external/pubs/ft/weo/2006/01/pdf/c4.pdf.
Rich corporations, poor societies: The financialisation of Apple
9
3 The financialisation of Apple
This section features the case study of Apple and is organized in four parts: the first part provides
a short overview of the American tech company, outlining the key features of Apple’s business
model and a number of historical developments relevant to the case at hand. As indicated, the
financialisation of Apple is not an account of increased profit-making via financial channels10,
because Apple is able to realise high profit margins on its products amidst strong revenue growth,
whilst Apple’s returns via financial channels remain relatively muted due to low interest rates.
To unpack the financialisation of Apple – understood here as maximising shareholder value,
seeing Apple increasingly operate as a financial investor following the accumulation of massive
cash reserves – the next two sections focus on the offshoring and outsourcing of material and
immaterial processes, namely (i) production i.e. the manufacturing of components and the
assembly of finished products, and (ii) paper trails trails i.e. creative accounting for Apple’s global
product sales, profits and cash reserves. Both strategies are integral to minimising costs and
amplifying profits, and hence for increasing Apple’s share price. Finally, the fourth section
discusses how Apple’s cash reserves are converted into dividends, further maximising Apple’s
shareholder value.
3.1 A short overview
“Steve Jobs knew that the best way to create value in the twenty-first century was to
connect creativity with technology, so he built a company where leaps of the imagination
were combined with remarkable feats of engineering.”11
Told many times before, the story of Apple very much resonates with the mythical ‘American
Dream’: from the early days in 1976, when assembled personal computers were being assembled
in the garage of his parents, the legendary Steve Jobs and his long-time associate Steve Wozniak
have over time come to build the world’s most valuable company. Although not an inventor,
Jobs revealed a capacity to combine and integrate different technologies for personal use. These
­technologies, it must be said, have their origins in massive public spending. That is to say, although
the legendary Jobs often spoke of ‘innovation’, ‘creativity’ and ‘risk taking’, he typically forgot
to mention a key player that has been instrumental to the phenomenal rise of Apple – that is
the American state:
“Individual genius, attention to design, a love for play, and foolishness were no doubt
important characteristics. But without the massive amount of public investment behind the
computer and Internet revolutions, such attributes might have led only to the invention of
a new toy – not to cutting-edge revolutionary products like the iPad and iPhone which have
changed the way that people work and communicate”12
Having mostly sold their first sets of personal computers to California-based tech nerds, and having
sourced modest financing from venture capitalists, in 1980 Apple was listed on the NASDAQ
stock exchange. The 1980s also proved to be the starting point of the financialisation of Apple,
10 Krippner G (2005) The Financialization of the American Economy. Socio-Economic Review 3(2) 173-208.
11 Isaacson W (2011) Steve Jobs, inside front cover. Simon & Schuster: New York.
12 Mazzucato M (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths, p87. Anthem Press: London.
Rich corporations, poor societies: The financialisation of Apple
10
seeing the company progressively offshore and outsource its financial and productive activities
to low-tax and low- wage jurisdictions, whilst adopting a shareholder value strategy to prop up
the company’s share price. Crucially, Apple was not always set to become the star of Silicon
Valley. On the contrary, 1985 saw the resignation of Steve Jobs – he would not return until 1996.
This Jobless period coincided with sluggish growth compared to Apple’s competitors, particularly
Microsoft. To keep up financial appearances, John Sculley – Apple CEO from 1983 until 1993
– did much to boost Apple’s share price, including large share buybacks and paying out dividends.
It did not prove a successful strategy. Quite the opposite, the vision of Sculley, essentially
adopting the short-term outlook of Wall Street, eventually proved detrimental to the long-term
survival of Apple.
By the mid 90s, Apple’s financial woes had amplified, seeing Steve Jobs return to the company
he founded. Unlike Sculley, Jobs had “little if any interest” in returning earnings to shareholders.13
Jobs set out to revamp Apple’s business model, focusing on integrated high-quality/high-margin
technology products that ‘lock in’ the customer with integrated (hard- and software) products –
in other words, an “own the consumer” strategy.14 The iPod, iPhone and iPad have since the turn
of the millennium become testaments to Jobs’ vision. In combining high margins with spectacular
revenue growth, Apple’s earning capacity is truly outstanding, amongst others raking in 92% of
the mobile telecoms profits with a 20% market share.15 Although Jobs did not set out to please
Apple shareholders, the restructuring of Apple was based on an offshoring strategy that aimed
to minimize costs and amplify profits, and hence maximise Apple’s share price, which started
its phenomenal ascendancy from 2009 onwards.
Today, the operations of Apple Inc. are organized geographically, with its business activities in
the Americas headquartered in Cupertino (CA), and its operations in the rest of the world headquartered in Cork, Ireland. Research and Development (R&D) is conducted in the US, while
components for Apple products are sourced globally from other companies. Finally, the assembly
of Apple products is outsourced to third-party manufacturers in China, and the distribution of
these products is again organized via Apple headquarters in the US and Ireland. This particular
setup does not stem from the early days. The next sections detail the rationale behind Apple’s
reorganization, focusing on the offshoring and outsourcing of (i) material production i.e. the manufacturing of components and the assembly of finished products, and (ii) immaterial paper trails
i.e. creative accounting for Apple’s global product sales, profits and cash reserves.
13 Lazonick W, Mazzucato M and Tulum O (2013) Apple’s changing business model: What should the world’s richest
company do with all those profits? p 253. Accounting Forum 37 249-267.
14 Montgomerie J, Roscoe S (2013) Owning the consumer – Getting to the core of the Apple business model.
Accounting Forum 37 290-299.
15 Ovide S and Wakabayashi D (2015) Apple’s Share of Smartphone Industry’s Profits Soars to 92%. Wall Street Journal, 12
July, available online: http://www.wsj.com/articles/apples-share-of-smartphone-industrys-profits-soarsto-92-1436727458.
Rich corporations, poor societies: The financialisation of Apple
11
3.2 Offshoring/outsourcing production
“This apparent paradox of assembler misery and brand wealth is inherent in Apple’s
­financialized business model” 16
In the late 1970s, Apple decided to expand into Europe, and established a presence in Cork, Ireland.
As a result, during the 1980s and 1990s, Apple products were manufactured both in the US and
Ireland. By the late 1990s, however, Apple faced mounting financial difficulties, and restructured its
productive operations accordingly: the production of Apple components was outsourced to thirdparty manufacturers located around the globe, including high-wage countries such as Germany,
Japan and South Korea. Likewise, the assembly of finished Apple products was outsourced to large
third-party manufacturers located in China. These changes coincided with broader transformations
in the global corporate universe, where large vertically integrated firms were becoming unbundled
and brands were being made ‘leaner’ by refocusing on one’s ‘core competencies’ – R&D, marketing
and sales in case of Apple. Furthermore, the offshoring and outsourcing of manufacturing speaks to
the new international division of labour discussed above. Driven by the shareholder-value pressures
dictated by Wall Street, many multinational corporations have relocated productive capacity from
high- to low-wage countries in order to reduce their production costs.
Whereas the production of Apple components has been outsourced to manufacturers around
the globe, the assembly of finished products has been outsourced to a small set of specialised
assemblers, the largest of which is Foxconn International Holdings (FIH), operating out of a range
of low-wage jurisdictions such as China. Domiciled in the Cayman Islands and listed on the Hong
Kong stock exchange, Foxconn is a subsidiary of the world’s leading contract assembler Hon Hai
in Taiwan, and also works for Apple competitors such as Amazon (tablets) or Motorola (phones).
“Chinese firms like FIH generally assume a subcontractor role for a large US brand, so the supply
chain is trans-Pacific, not national, and their position within that chain is a subordinate one to that
of lead US firms like Apple”.17 The appalling conditions of Foxconn workers assembling Apple
products in China, leading to worker poisonings and suicides on the work floor, have been well
documented.18 This is arguably a consequence of the “dependent relationship” of Foxconn upon
Apple and others who are “dictating price and insist that the burden of adjustment in the fast
moving competition between final products are borne downstream”.19 20 Besides the fact that
neither Chinese nor US nor European workers really benefit from the financial affluence of Apple,
the outsourcing and offshoring of production is also detrimental to the US trade deficit with
China.21 Finally, governments and tax-paying citizens, both in the US and elsewhere, enjoy
16 Froud J, Johal S, Leaver A and Williams K (2012) Apple Business Model: Financialization across the Pacific. CRESC
Working Paper Series 111, available online: http://www.cresc.ac.uk/medialibrary/workingpapers/wp111.pdf.
17 Ibid p 16.
18 SACOM (2011) Foxconn and Apple Fail to Fulfill Promises: Predicaments of Workers after the Suicides. Students &
Scholars Against Corporate Misbehaviour, 6 May, available online: http://somo.nl/publications-nl/Publication_3669-nl.
19 Froud J, Johal S, Leaver A and Williams K (2012) Apple Business Model: Financialization across the Pacific. CRESC
Working Paper Series 111, p 17, available online: http://www.cresc.ac.uk/medialibrary/workingpapers/wp111.pdf.
20 SOMO (2014) Dragging out the best deal: How billion dollar margins are played out on the backs of electronics workers.
Centre for Research on Multinational Corporations, October, available online: http://somo.nl/publications-nl/
Publication_4109-nl.
21 Xing Y, Detert N (2010) How the iPhone Widens the United States Trade deficit with the People’s Republic of China. Asian
Development Bank Institute. Working Paper 257, available online: http://www.adb.org/sites/default/files/
publication/156112/adbi-wp257.pdf.
Rich corporations, poor societies: The financialisation of Apple
12
surprisingly few benefits from Apple’s massive success, for Apple’s riches are typically parked
in tax havens beyond the reach of the tax authorities.
3.3 Offshoring paper trails
“Apple’s offshore affiliates operate as one worldwide enterprise, following a coordinated
global business plan directed by Apple Inc.” 22
Besides offshoring production to low-wage countries to minimize costs, the accounting behind
Apple’s global product sales, profits and cash reserves has been reorganized to minimize the
company’s tax returns. Apple’s Irish operations located in Cork initially included production, but
since the late-1990s reorganization of Apple this is no longer the case. Today, Apple’s Irish
operations have effectively financialised, seeing Apple’s finances consolidated under two of its
Irish subsidiary companies registered at the same Cork address. According to the United States
Senate, these subsidiaries are “the key affiliates at the top of the offshore network” of Apple.23
This section details the features of Apple’s ‘paper trails’ offshoring strategy. Again, they speak
to wider developments in the global corporate universe.
The Republic of Ireland is an established tax haven with a statutory corporate income tax rate
of 12.5%– the lowest in the European Union (EU). Like other corporations, however, Apple has
negotiated a substantially lower tax rate with the Irish authorities, effectively below 2%. In the
words of the recent US Senate investigation on Apple’s tax strategy, “Ireland has essentially
functioned as a tax haven for Apple, providing it with minimal income tax rates approaching zero”.24
The first-tier offshore affiliate of Apple is Apple Operations International (AOI), which is fully owned
by the mother company in Cupertino. Ever since it was founded in 1980, however, AOI has not
had any employees. The assets of AOI are managed by another Apple subsidiary, Braeburn Capital,
located in Reno (Ne), US (the state of Nevada has a zero percent corporation tax compared to nine
percent in California), while the assets themselves are held in bank accounts in New York.25
“Although AOI has been incorporated in Ireland since 1980, it has not declared a tax
residency in Ireland or any other country and so has not paid any corporate income tax to
any national government in the past five years. Apple has exploited a difference between
Irish and U.S. tax residency rules”26
Another Irish offshore affiliate known as Apple Sales International (ASI) – subsidiary of Apple
Operations Europe (AOE), which is owned by AOI – equally operates without tax residency, paying
hardly any taxes , if at all, to national governments on an income of $74 billion accumulated over
the period 2009-2012. As is the case with AOI, until 2012 ASI had no employees. In fact, ASI’s
directors were based in Cupertino and their board meetings took place there too. Although
a corporate revamp assigned 250 former AOE employees to the ASI, the offshore affiliate still
22 United States Senate (2013) EXHIBITS. Hearing on Offshore Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.),
p 30, available online: http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting- andthe-us-tax-code_-part-2.
23 Ibid p 19.
24 Ibid: p 21.
25 Ibid: p 21-22.
26 Ibid: p 23.
Rich corporations, poor societies: The financialisation of Apple
13
Figure 4 – Apple’s offshore organogram
APPLE INC
United states
APPLE OPERATIONS
INTERNATIONAL
AOI
Ireland / No Tax Residence*
APPLE OPERATIONS
EUROPE
AOE
APPLE DISTRIBUTION
INTERNATIONAL
ADI
APPLE
RETAIL HOLDING
EUROPE
Ireland / No Tax Residence
Ireland / Ireland
Ireland / Ireland
APPLE SALES
INTERNATIONAL
ASI
APPLE RETAIL BELGIUM
APPLE RETAIL FRANCE
Ireland / No Tax Residence
APPLE RETAIL GERMANY
APPLE RETAIL ITALIA
APPLE RETAIL NETHERLANDS
APPLE ASIA
IN COUNTRY
DISTRIBUTORS
APPLE SOUTH ASIA Pte Ltd.
Apple Singapore
Singapore / Singapore
APPLE RETAIL SPAIN
APPLE RETAIL SWITZERLAND
APPLE RETAIL UK
*Listed countries indicate country of incorporation and country of tax residence, respectively
Source: United States Senate 2013: 20
maintains that “its management and control is located outside Ireland and continues to claim it
has no tax residency in either Ireland or the United States”.27 As indicated, not claiming tax residency
is enabled by gaming (arbitraging) national tax codes and bilateral tax treaties, seeing the fiscal
duties of these companies effectively dissolve in the legal labyrinths of the offshore world.
“In addition to shielding income from taxation by declining to declare tax residency in any
country, Apple Inc.’s Irish affiliates have also helped Apple to avoid U.S. taxes in another
way, through utilization of a cost-sharing agreement and related transfer-pricing practices” 28
Alongside ASI and AOE, Apple Distributions International (ADI) in Ireland and Apple South Asia
Pte. Ltd. in Singapore are other offshore affiliates instrumental to these schemes. Apple’s internal
cost-sharing agreements between various subsidiaries are related to R&D costs. Crucially,
27 United States Senate (2013) EXHIBITS. Hearing on Offshore Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.),
p 24-25, available online: http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shiftingand-the-us-tax-code_-part-2.
28 Ibid: p 25.
Rich corporations, poor societies: The financialisation of Apple
14
although the bulk of R&D is conducted in the US, these agreements are structured in such a
manner that the lion’s share of R&D is reported in Ireland, minimizing the US tax bill. Likewise, the
offshore affiliates keep the bulk of Apple’s sales revenues outside of the US, and hence outside
the purview of the Internal Revenue Service (IRS). As is the case with the cost-sharing agreements
on R&D, “Apple’s transfer of economic rights to its intellectual property to Ireland has no apparent
commercial benefit apart from its tax effects”.29 As titles to Apple products are transferred to
Ireland, many countries are seeing little if any tax returns from Apple. For example, in 2011 Apple
recorded 84% of its non-US operating income through ASI in Ireland, resulting in zero tax
liabilities for Apple’s French and German retail affiliates.
“Through this foreign profit shifting, Apple is able to reduce its foreign tax rate to below 2%.” 30
It should be noted that Ireland is by no means the only European jurisdiction assisting Apple in
global tax avoidance. For example, Luxemburg and The Netherlands feature in these schemes:
both countries have essentially enabled Apple to establish a ‘presence’ in these jurisdictions,
which typically is nothing more than a mailbox. Specifically, Luxemburg offers a tax-free haven
to route through Apple’s global sales of iTunes downloads, whereas the Netherlands features as
an in-between ‘paper trail’ gateway for AOI and ASI to offshore profits further into the tax-free
Caribbean – a popular tax-avoidance strategy dubbed ‘Double Irish with a Dutch sandwich’
which was pioneered by Apple:
“Apple has assigned partial ownership of its Irish subsidiaries to Baldwin Holdings
Unlimited in the British Virgin Islands, a tax haven, according to documents filed there and
in Ireland. Baldwin Holdings has no listed offices or telephone number, and its only listed
director is Peter Oppenheimer, Apple’s chief financial officer, who lives and works
in Cupertino.” 31
By offshoring both material and immaterial activities, Apple has been able to accumulate massive
cash reserves, which are mostly parked in tax havens. Apple does not want to repatriate these
reserves to the head office in Cupertino, as these returns will be subject to corporate taxation.
Yet Apple shareholders are increasingly demanding a piece of the large cash-reserve pie, once again
causing Apple to employ a range of financial techniques to repatriate dividends to their shareholders.
3.4 Apple’s cash pile
Before detailing the repatriations of dividends to the shareholders, we will quickly outline the
magnitude of Apple’s cash reserves. Table one shows Apple’s corporate performance compared
to the industry median. First, the operating margin is higher than the industry median, and
improving since 2005. Secondly, return on equity (RoE) – a financial indicator that embodies the
age of shareholders value like no other – is very high compared to other corporations. Third, the
times interest earned ratio illustrates the ability to meet interest payments. Fourth, the debt
29 United States Senate (2013) EXHIBITS. Hearing on Offshore Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.),
p 25, 29, available online: http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shiftingand-the-us-tax-code_-part-2.
30 Ibid: p 40.
31 Duhigg C and Kocieniewski D (2012) How Apple Sidesteps Billions in Taxes. New York Times, 28 April, available online:
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?_r=0.
Rich corporations, poor societies: The financialisation of Apple
15
incurred since 2013, demonstrated by the debt to equity ratio, is above industry standards in
2014. In other words, although Apple took out large loans to pay out massive dividends to their
shareholders (see next section) – going from zero debt to above industry median debt levels –
Apple’s ability to meet interest payments is almost ten times as high as the industry median.
Table 1 – Apple’s financial performance
Indicator
Industry median
2014
2013
2011
2009
2007
2005
Operating Margin
7.0%
28.7%
28.7%
31.2%
27.4%
17.9%
11.8%
Return on equity
9.6%
33.6%
30.6%
41.7%
30.5%
28.5%
21.2%
Reinvestment Rate
21.2%
7.0%
24.2%
21.9%
41.7%
30.5%
28.5%
Times Interest Earned
13.5
136.7
360.3
-
-
-
-
Debt to Equity ratio
0.26
0.32
0.14
0.00
0.00
0.00
0.00
12.7%
19.7%
12.1%
0.0%
0.0%
0.0%
0.0%
Debt to Total Capital
Source: Thompson Reuters
If we look at Apple’s income statement over the last 10 years we see a rapid surge in revenue,
investments, profits and financial reserves. Net income before taxes increased from $1.8 billion
in 2005 to $54 billion in 2014. Figure four shows how Apple accumulated financial assets (cash,
short-term and long-term financial assets) since 2008. We see that a growing share of Apple’s
reserves is classified as long-term financial assets, mostly bonds.
Finally, figure five shows how large Apple’s financial reserves are relative to the foreign exchange
reserves of a number of developed economies, and to those of other American (tech) corporations:
Figure 5 – Apple’s financial assets
160.000
140.000
120.000
100.000
80.000
60.000
40.000
20.000
0
2014
2013
2012
Cash and Short Term Investments
2011
2010
Long Term Investments
Rich corporations, poor societies: The financialisation of Apple
2009
2008
Source: Thompson Reuters
16
Figure 6 – The magnitude of Apple’s cash pile
200
175
150
125
100
75
50
25
Netherlands
Spain
Australia
Cisco Systems
Pfizer
Google
Canada
UK
Microsoft
France
Germany
Apple
0
Source: Krantz 2015 for companies; World Bank Data for reserves of countries
3.5 A corporate cash machine
“The cash pile is technically owned by Apple’s subsidiaries in Knocknaheeny, a rundown
northern suburb of Cork, Ireland. But it is managed by a rarely talked-of investment
subsidiary closer to home and largely invested in American assets, including billions in
corporate bonds and US government debt. There is only one brief mention of this opaque
internal investment company in Apple’s annual report, on page 114. It is called Braeburn
Capital and registered in a quiet corner of Reno, Nevada. Some commentators have
described it as “the biggest hedge fund you’ve never heard of.” 32
Although tech companies typically hold more cash than other corporations – for example, Google
held a 60% cash reserve of its assets – in 2010 the average cash pool of a tech firm was 30%,
whereas US corporations typically held just 10% of assets in cash.33 As one analyst observed,
“if cash is king, Apple’s is an emperor”.34 Not reinvesting its cash into productive capacities, say in
R&D or the wider ‘real’ economy, Apple instead invested its cash in a range of financial securities,
including money market funds, treasury securities, commercial paper and corporate securities.
To put the size of Apple’s cash pool into perspective: Apple’s CFO should be seen as the world’s
largest hedge fund manager. In fact, Apple’s quarterly cash growth outstrips the market capitalization
of many firms, and the mushrooming cash pool could buy out many rival tech firms at once.35
The rising cashpool brings about its own problems:
32 Bowers S (2015) Apple’s cash mountain grows to $178bn. The Guardian, 2 February, available online:
http://www.theguardian.com/business/2015/feb/02/apple-cash-mountain-grows.
33 Parsons J (2011) Apple’s cash hoard: how much is too much? Betting the Business, 25 July, available online:
http://bettingthebusiness.com/2011/07/25/apples-cash-hoard-how-much-is-too-much/.
34 Dediu H (2011) If Cash is King, Apple’s is an Emperor. Asymco, 26 April, available online:
http://www.asymco.com/2011/04/26/2895/.
35Ibid.
Rich corporations, poor societies: The financialisation of Apple
17
“Retaining cash is the premier risk management tool. But holding cash is costly since
shareholders have other investments they can make with those dollars. Companies have to
balance the value gained by holding an extra dollar of cash against the value lost by not
returning it to shareholders. Determining the right balance is a constant source of friction
between management and shareholders, and among different shareholders.” 36
The growth of Apple’s cash pool is astonishing, soaring from $76 billion in 201137 towards
$178 billion early 2015 i.e. “among the biggest of any public corporation in the world”.38 After
the first quarter in 2015, the cash pool had risen to $194 billion, “which is more than any other
non-financial company in the Standard & Poor’s 500 – by a mile”.39 As indicated, Apple’s
mushrooming cash pool is locked up overseas to avoid a tax bill in the US. “At present, this sum
cannot be reinvested in Apple’s US businesses nor returned to shareholders without incurring a
colossal tax bill”.40 Yet activist investors like hedge funds have increasingly demanded a slice of
these cash reserves, wanting to maximise their shareholder value. As a result, Apple has adopted
financial engineering as a solution: instead of repatriating its offshore cash pile, the company went
on a borrowing streak. In 2013 Apple sold the largest corporate-bond deal in history, borrowing
$17 billion against historically low rates, in order to pay out dividends to its shareholders.41
This is part of a larger strategy “to distribute $100 billion in cash to shareholders - $40 billion
in cash dividends and $60 billion in stock repurchases – by the end of calendar year 2015”.42
These developments hint at a return to Apple’s business model of the 1980s, which “suggest that
Apple’s innovative capability will be much diminished in the future”, turning Apple into “a financial
enterprise that lives off the past”, instead of being a “productive enterprise that invests for
the future”.43
36 Parsons J (2011) Apple’s cash hoard: how much is too much? Betting the Business, 25 July, available online:
http://bettingthebusiness.com/2011/07/25/apples-cash-hoard-how-much-is-too-much/.
37Ibid.
38 Bowers S (20 15) Apple’s cash mountain grows to $178bn. The Guardian, 2 February, available online:
http://www.theguardian.com/business/2015/feb/02/apple-cash-mountain-grows.
39 Krantz M (2015) $194B! Apple’s cash pile hits record. USA Today, 27 April, available online: http://americasmarkets.
usatoday.com/2015/04/27/194b-apple-cash-pile-hits-record/.
40 Bowers S (2015) Apple’s cash mountain grows to $178bn. The Guardian, 2 February, available online:
http://www.theguardian.com/business/2015/feb/02/apple-cash-mountain-grows.
41 Burne K and Cherney M (2013) Apple’s Record Plunge Into Debt Pool. Wall Street Journal, 30 April, available online:
http://www.wsj.com/articles/SB10001424127887324482504578454691936382274.
42 Lazonick W, Mazzucato M and Tulum O (2013) Apple’s changing business model: What should the world’s richest
company do with all those profits? p 250. Accounting Forum 37 249-267.
43 Ibid p 250-251.
Rich corporations, poor societies: The financialisation of Apple
18
4Conclusion
The age of neoliberal globalization has led to the phenomenal rise of giant corporations, many
of which have financialised, increasingly resembling the workings of banks, institutional investors
and hedge funds. This paper has foregrounded the example of Apple Inc. to demonstrate that
ballooning corporate wealth has come at the expense of the wellbeing of larger societies. Whereas
Apple has massively benefited from public investments, governments and tax-paying citizens and
workers around the globe are seeing surprisingly poor returns in the form of public investments
(financed by corporate income taxes) and wages from Apple’s riches. Instead, through the
offshoring of production and creative accounting, Apple has gone to great lengths to minimize its
production costs and tax bills. This particular business model has received critical attention from
NGOs and governments in the US44 and Europe45. Rightly so, for Apple’s business model – exemplar
of wider changes in the corporate universe – is simply unsustainable, as governments and
households become increasingly dependent upon public and private debt instead of benefiting
from fair tax contributions and earning decent wages.
The story of Apple, although inevitably unique, strongly resonates with wider developments
in the global political economy. Not least thanks to the productivity gains achieved by global
workers, the world economy has been able to grow steadily, and corporations in particular have,
since the turn of the millennium, massively increased their profitability. Yet these productive
workers, in both developed and developing economies, are themselves earning less and less in
proportion to economic growth, as exemplified in declining wage shares worldwide. In addition,
whereas corporations have been able to reduce their tax bills, workers and citizens have generally
witnessed an increase in taxes. The overall result is that corporations have come to accumulate
massive reserves which – instead of fuelling the real economy – increasingly feed into financial
markets. The full picture suggests that these changes have chiefly benefited corporate management
and shareholders, reinforcing trends in widening inequality, and allowing corporate affluence to
live off the rest of society.
In order to contribute to a more balanced and sustainable economy, multinational corporations,
including Apple, should radically evaluate the long-term impact of their business models. Above
all, this requires corporations to do more than focusing on the short-term creation of shareholder
value. To this end, this paper calls upon governments to make corporations (i) pay their fair share
in taxes, (ii) pay decent wages and (iii) invest cash reserves in productive rather than financial
assets. Amongst other things, this implies that governments should curb the possibilities for
corporations to dodge taxes and park their cash offshore. Ultimately, from a long-term perspective
these changes will also benefit corporations, including Apple, and long-term oriented shareholders
such as pension funds, as the status quo is simply unsustainable. Particularly for Apple, the years
ahead will determine whether the spectacular successes of Steve Jobs can be continued. If not,
Apple’s mounting cash pile will merely feed short-term investors, while the tech star of Silicon
Valley will face an uncertain outlook. As Steve Jobs has demonstrated, and this paper has
indicated, it does not have to be this way.
44 United States Senate (2013) EXHIBITS. Hearing on Offshore Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.),
available online: http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting- and-theus-tax-code_-part-2.
45 European Commission (2014) State aid SA.38373 (2014/C) (ex 2014/NN) (ex 2014/CP) – Ireland Alleged aid to Apple,
11 June, available online: http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf.
Rich corporations, poor societies: The financialisation of Apple
19
Using creativity and imagination to minimize taxes and wages so as to fatten the pockets of
shareholders is ultimately a dead-end. It is therefore high time governments around the globe
start to rein in the corporate cash machines, and tap into the mounting cash reserves of those
who do not invest their riches productively. It is high time for decent wages, real investments,
real tax returns, and real sustainable development. Not only is this in the long-term interest
of all stakeholders, including Apple’s management and shareholders, it would also contribute
to the sustainability of the crisis-prone capitalist system itself.
Rich corporations, poor societies: The financialisation of Apple
20
Glossary
Operating margin
Return on equity
Debt to equity ratio
Debt to total capital
The proportion of the revenue that is left over after paying
for all operational expenses (wages, material, etc.)
The rate of return for shareholders equity
Debt divided by total shareholders equity
Debt divided by total capital
Rich corporations, poor societies: The financialisation of Apple
21
Colophon
Rich corporations, poor societies: The financialisation of Apple
October 2015
Author
Published by
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GoodElectronics, SOMO
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Frans Schupp – www.fransschupp.nl
9789462070738
This work is licensed under a Creative Commons Attribution-NonCommercialNoDerivs 4.0 Unported License.
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The content of this publication is the sole responsibility of SOMO and can in no
way be taken to reflect the views of the European Union.
SOMO
The Centre for Research on Multinational Corporations (SOMO) is a non-profit
Dutch research and advisory bureau. SOMO investigates the policies of multi­
national enterprises and the internationalisation of business worldwide.
www.somo.nl
The GoodElectronics Network brings together networks, organisations and individuals that
are concerned about human rights, including labour rights, and sustainability issues in the
global electronics supply chain, including but not limited to trade unions, grass roots organisations, campaigning and research organisations, academia, and activists. The Network has
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Rich corporations, poor societies: The financialisation of Apple
22
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